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ABN: Clothing stores without a good location or website have a hard time

2019-08-20T07:23:09.181Z

The clothing industry has a dichotomy in which stores with an appealing location or attractive website are growing rapidly, while the rest are struggling, conclude ABN AMRO and Locatus in a study published Tuesday.


The clothing industry has a dichotomy in which stores with an appealing location or attractive website are growing rapidly, while the rest are struggling, conclude ABN AMRO and Locatus in a study published Tuesday.

For the research, revenue data was combined with data about locations.

The industry has only limited profit from economic prosperity. For example, the combined revenue from store and online sales only increased by 2 percent in 2018.

The dichotomy in the sector is large, the researchers report. For example, one in five clothing stores grew by more than 10 percent last year, while more than half of the stores saw revenue fall. The sales decrease was even more than 10 percent at no less than a quarter of the retailers.

Small margins in the clothing industry

The drop in turnover means a substantial drop in profit for clothing retailers almost immediately, because the margins in the sector are very small.

For example, the operating profit margins for fashion stores for individual target groups such as men, women or children are on average 3 to 4 percent, while those of lingerie stores are only 2 percent. For stores with a mixed target group, the margin is even negative on average.

ABN AMRO's forecast for the industry is that average growth will come to a halt this year. The researchers base this on the disappointing turnover, with more than half of the entrepreneurs seeing a decrease in the first quarter.

The researchers expect the dichotomy between successful and less successful entrepreneurs to continue this year and in 2020.

Quality remains important (but is not enough)

The strong growth differences are largely due to visibility, both in the shopping street and on the internet. Quality and service remain decisive for success, but that's not enough, the researchers say.

In Amsterdam, Rotterdam and The Hague, a busy and visible location proved very good for revenue growth last year. Clothing retailers achieved 7 percent revenue growth here. If these cities are not counted, revenue growth in the Randstad provinces shrank.

Incidentally, it is not only in the Randstad that revenue growth can be achieved: retailers in the north achieved 3 percent. It is more difficult in southern provinces, and a revenue decrease of 7 percent was achieved. Possibly this is because there are considerably more stores in the south.

Influence of A locations on turnover

There are also variations in locations within a region that can make the difference between growth, downtime or shrinkage. For example, consumers seem to have a lot more eye for stores at A-locations, where between 75 and 100 percent of the shopping people pass by.

In 2018, no fewer than 44 percent of all 'offline' revenue was generated by stores at such locations, while only 21 percent of stores are located here. This means that the turnover of a store is tripled on average from an A location compared to outside it. The turnover per square meter is even more than four times as high.

Online sales also grew strongly, and were even the cause of the overall growth of the industry. If this turnover had not been included, there would have been a contraction of 5 percent instead of the 2 percent growth.

Stores that generate less than 10 percent of revenue from online sales, saw their revenue fall by 5 percent on average in 2018. The entire clothing industry achieves 15 percent of sales from web sales. According to ABN, that will only increase in 2019 and 2020.

Source: nunl

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